February 6, 2006

Oil trade seen cushioning US-Venezuela spat

By Catherine Bremer

CARACAS, Venezuela (Reuters) - A barrage of insults and two
foreign staff expulsions have knocked U.S.-Venezuelan relations
to a new low, but the pair's mutually vital oil trade should
act as a collision buffer, analysts say.

Already icy relations worsened last week after the
U.S.-bashing Hugo Chavez expelled a U.S. naval attache on
spying allegations and the State Department responded by
ordering out a Venezuelan diplomat. Exiled diplomat Jeny
Figueredo arrived back in Caracas to cheering crowds on Monday.

"Relations are probably at their lowest point. Things have
gotten very bad. The two governments are on a collision
course," said Michael Shifter, a Latin American analyst at the
Inter-American Dialogue, a Washington-based think tank.

"But relations have hit a low before, and so far oil
dependence on both sides has been a check. Chavez tends to go
up to a line and then pull back, and the oil question prevents
things going completely off track," he said.

Chavez, a blunt-speaking, self-styled revolutionary who has
become a regional standard-bearer for anti-American sentiment,
upped the ante over the weekend when he warned he could halt
oil shipments to the United States and close Venezuelan-owned
refineries there.

Nervous about the stability of Middle East oil, the United
States needs every barrel of the crude it gets from Venezuela,
supplier of some 15 percent of U.S. imports. Other suppliers
like Canada and Mexico are already pumping at full capacity.

Likewise, left-wing Chavez is reliant on the roughly $80
million a day he gets from U.S. oil sales to fund sweeping
social programs introduced since he took office in 1998.

The United States swallows more than half of Venezuela's
oil, and analysts doubt that far-off importers like China could
emerge as buyers of Venezuela's heavy crude any time soon.
Chavez's past threats to cut off U.S. oil never materialized.

"Markets will keep an eye on the situation but I haven't
heard anything to suggest people are giving it more credence
than usual," said Jed Baker, head of Latin American research at
think tank Cambridge Energy Research Associates.

"It's not something they could do for a sustained period.
Venezuela needs the U.S. as much as the U.S. needs Venezuela."


A former army officer and leader of a failed 1992 coup,
Chavez has irked the United States by developing alliances with
nations like Cuba and Iran.

On Sunday, Chavez warned supporters that Washington could
try to sabotage his December re-election bid. He has nicknamed
the U.S. president "Mr. Danger" and has vowed to arm a million
civilians against a possible U.S. attack.

Though Washington portrays him as a menace to regional
stability, U.S. authorities dismiss the idea that they would
try to oust him.

Analysts at Barclays Capital on Monday advised investors to
"keep an eye" on the seemingly escalating tussle.

Yet many believe Chavez's latest vitriol is linked to the
December election, where despite high ratings he will need to
rally voters who abstained in recent elections and distract
attention from criticism that he has failed to reduce poverty.

"I don't think Chavez wants to talk about the internal
problems the country is facing. One way to divert attention
from that is this confrontation with the United States," said
analyst Michael Penfold at IESA college in Caracas.